For You Stock Investors - You Need Dividends!
Capital gains, income and growth are the primary drivers of stock investing decisions.
Depending on your investment profile and objectives, focusing on any one - or a combination of all three - has merit.
Further, any one or all of the drivers can be obtained from individual stock, stock mutual fund or (stock) ETF ownership.
This blog is about dividends - which are addressed mainly through income producing stock investing.
A quick review of the basic of dividends: Dividends are a percent of the profits distributed to shareholders by a corporation.
When a company has a profit it can either choose to reinvest it in the company, to grow it, or it can choose to distribute it to shareholders.
When a company matures (you will not find many start-up companies paying dividends) and/or has a strong cash flow, it normally establishes a dividend policy and begins paying them.
Although there are numerous points that can be made about the virtues (and ills) of investing for dividends, I'd like to highlight three of them that I think are quite relevant: * Dividend yielding stocks perform well in both rising and falling markets.
In the 1982-2000 bull market, dividend paying stocks outperformed non-dividend payers by a considerable margin.
In volatile and falling markets, mature companies - that have histories of paying dividends - typically continue to pay them, which add a large measure of comfort to the investor in that while the price of a share might be temporarily going down, the cash flow from dividends normally continues.
* Along with investments in various types of bonds, dividend paying stocks provide steady cash flow - perfect for a well-designed retirement plan, i.
e.
principle is preserved.
But a major attraction of having dividend payers in that strategy is the inflation hedge they inherently create.
* Historically, the reinvestment of dividends represents a significant portion of the overall gain of a stock investment.
Clearly performance in any one year is through capital gains - but the long term gain of a stock is through the reinvestment of its dividend.
The bottom line is that there are considerable virtues in investing in dividend paying stocks and they certainly have a place in portfolios of young and older investors alike.
Please note one thing that has to be watched however.
This fall (2010) Congress is deciding whether to extend the current tax rate (15%) on qualified dividends or increase it.
Make sure you consider this before you invest or wait for the decision.
And, as always, check with an accountant or financial advisor.
Depending on your investment profile and objectives, focusing on any one - or a combination of all three - has merit.
Further, any one or all of the drivers can be obtained from individual stock, stock mutual fund or (stock) ETF ownership.
This blog is about dividends - which are addressed mainly through income producing stock investing.
A quick review of the basic of dividends: Dividends are a percent of the profits distributed to shareholders by a corporation.
When a company has a profit it can either choose to reinvest it in the company, to grow it, or it can choose to distribute it to shareholders.
When a company matures (you will not find many start-up companies paying dividends) and/or has a strong cash flow, it normally establishes a dividend policy and begins paying them.
Although there are numerous points that can be made about the virtues (and ills) of investing for dividends, I'd like to highlight three of them that I think are quite relevant: * Dividend yielding stocks perform well in both rising and falling markets.
In the 1982-2000 bull market, dividend paying stocks outperformed non-dividend payers by a considerable margin.
In volatile and falling markets, mature companies - that have histories of paying dividends - typically continue to pay them, which add a large measure of comfort to the investor in that while the price of a share might be temporarily going down, the cash flow from dividends normally continues.
* Along with investments in various types of bonds, dividend paying stocks provide steady cash flow - perfect for a well-designed retirement plan, i.
e.
principle is preserved.
But a major attraction of having dividend payers in that strategy is the inflation hedge they inherently create.
* Historically, the reinvestment of dividends represents a significant portion of the overall gain of a stock investment.
Clearly performance in any one year is through capital gains - but the long term gain of a stock is through the reinvestment of its dividend.
The bottom line is that there are considerable virtues in investing in dividend paying stocks and they certainly have a place in portfolios of young and older investors alike.
Please note one thing that has to be watched however.
This fall (2010) Congress is deciding whether to extend the current tax rate (15%) on qualified dividends or increase it.
Make sure you consider this before you invest or wait for the decision.
And, as always, check with an accountant or financial advisor.
